Semiannual Report to Congress

Investigations

The OIG’s Office of Investigations conducts criminal, civil, and administrative investigations related to Board and CFPB programs and operations. The OIG operates under statutory law enforcement authority granted by the U.S. Attorney General, which vests our Special Agents with the authority to carry firearms, seek and execute search and arrest warrants, and make arrests without a warrant in certain circumstances. OIG investigations are conducted in compliance with CIGIE’s Quality Standards for Investigations and the Attorney General Guidelines for Offices of Inspector General with Statutory Law Enforcement Authority.

State Member Banks

The Board is responsible for supervising and regulating state-chartered banks that are members of the Federal Reserve System. Under delegated authority from the Board, the Reserve Banks execute the day-to-day supervision of state member banks, and the Board’s Division of Banking Supervision and Regulation is responsible for overseeing the Reserve Banks’ supervisory activities. Our office’s investigations concerning state member banks typically involve allegations that bank officers have falsified financial records, lied to or misled examiners, or obstructed examinations in a manner that may have affected the Board’s ability to carry out its supervisory and regulatory responsibility over state member banks. Such activity may result in criminal violations, such as false statements or obstruction of a bank examination.

Our office’s investigative efforts in such cases typically consist of interviewing witnesses and subjects; identifying and obtaining critical Board documents; issuing subpoenas; analyzing financial records; and coordinating work between the U.S. Department of Justice, other law enforcement partners, and Board and Reserve Bank staff. Examples of investigations affecting the Board’s ability to carry out its supervisory and regulatory responsibilities over state member banks are provided below; however, due to prosecutorial discretion and the nature of the investigative process, certain criminal allegations investigated by our office may not appear in U.S. Department of Justice indictments or plea agreements.

Former Vice President of Fifth Third Bank Sentenced in Scheme to Defraud

On August 26, 2014, a former Vice President of Fifth Third Bank in Jacksonville, Florida, was sentenced to five years in prison for embezzling at least $10.5 million from Fifth Third Bank over a four-year period. He also must pay $2 million in restitution to the bank after he is released. The former Vice President pleaded guilty in March 2014 to bank fraud. Fifth Third Bank, headquartered in Cincinnati, Ohio, is a state member bank regulated by the Board.

The former Vice President operated a bank-fraud scheme that included stealing at least $10.5 million from one corporate account and transferring money from two individual accounts to cover the original thefts. The embezzlement occurred over a three-and-a-half-year period.

This case was the result of a joint investigation by the Board-CFPB OIG, the Federal Bureau of Investigation (FBI), and Fifth Third Bank’s Protection Division. The case was prosecuted by the U.S. Attorney’s Office for the Middle District of Florida.

Bank Holding Companies

The Board is responsible for supervising and regulating bank holding companies, including financial holding companies formed under the Gramm-Leach-Bliley Act, on a consolidated basis. Under delegated authority from the Board, the Reserve Banks execute the day-to-day supervision of bank and financial holding companies, and the Board’s Division of Banking Supervision and Regulation is responsible for overseeing the Reserve Banks’ supervisory activities. Our office’s investigations concerning bank holding companies typically involve allegations that holding company directors or officers falsified financial records, lied to or misled examiners, or obstructed examinations in a manner that may have affected the Board’s ability to carry out its supervisory and regulatory responsibilities over bank holding companies. Such activity may result in criminal violations, such as false statements or obstruction of a bank examination.

Our office’s investigative efforts in such cases typically consist of interviewing witnesses and subjects; identifying and obtaining critical Board documents; issuing subpoenas; analyzing financial records; and coordinating work between the U.S. Department of Justice, other law enforcement partners, and Board and Reserve Bank staff. Examples of investigations affecting the Board’s ability to carry out its supervisory and regulatory responsibilities over bank holding companies are provided below; however, due to prosecutorial discretion and the nature of the investigative process, certain criminal allegations investigated by our office may not appear in U.S. Department of Justice indictments or plea agreements.

Bankers and Attorney Sentenced to Prison for Fraud, False Statements, and Making a False Claim Against the United States

On August 22, 2014, two former Coastal Community Investments (Coastal) officers and the bank’s attorney were sentenced to federal prison due to their conviction on charges that included conspiracy to commit wire fraud, wire fraud, making false statements, and filing false claims against a federal bank regulator. Coastal was a bank holding company regulated by the Board. It owned Coastal Community Bank, based in Panama City Beach, Florida, and Bayside Savings Bank, based in Port St. Joe, Florida. Coastal Community Bank and Bayside Savings Bank both failed on July 30, 2010. The two former Coastal officers and the bank’s attorney received the following sentences:

• The Chairman and Chief Executive Officer of Coastal was convicted at trial of conspiracy, seven counts of wire fraud, three counts of making false statements to a federal bank regulator, and one count of filing a false claim with a federal bank regulator. The bank official was sentenced to 48 months’ imprisonment.
• The Chief Financial Officer of Coastal was convicted at trial of seven counts of wire fraud, three counts of making false statements to a federal bank regulator, and one count of filing a false claim with a federal bank regulator. The Chief Financial Officer was sentenced to 36 months’ imprisonment.
• The attorney for Coastal was convicted at trial of conspiracy, four counts of wire fraud, one count of making false statements to a federal bank regulator, and one count of filing a false claim with a federal bank regulator. The attorney was sentenced to 48 months’ imprisonment.

All three defendants were also sentenced by the court to serve a period of three years of supervised release following their imprisonment and ordered to pay $4,538,399 jointly and severally in restitution.

This case was investigated by the Board-CFPB OIG, the FBI, the FDIC, and the Special Inspector General for the Troubled Asset Relief Program. The case was prosecuted by the U.S. Attorney’s Office for the Northern District of Florida.

Former Senior Vice President Indicted on Bank Fraud Charges

On April 2, 2014, a former Senior Vice President at One Bank and Trust, in Little Rock, Arkansas, was indicted with one count of conspiracy to commit bank fraud, misapplication of bank monies, making false entries to deceive federal bank regulators, obstructing a bank examination, and money laundering. The indictment also seeks forfeiture of the monies involved.

The indictment charges that the former Senior Vice President conspired with other persons to make false loans for the purpose of hiding the bank’s loss of a $1.5 million bad loan made in April 2007. The bad loan became uncollectible in 2008, and beginning in  2009, the former Senior Vice President and others hid the loss from the federal examiners by making loans to entities that he created or controlled. The new loans made by the former Senior Vice President masked the true condition of One Bank and Trust from the federal examiners.

The former Senior Vice President faces a possible sentence of not more than five years’ imprisonment, not more than a $250,000 fine, or not more than three years of supervised release for the conspiracy charge.

According to records from Treasury’s Troubled Asset Relief Program, One Financial Corporation, the bank holding company for One Bank and Trust of Little Rock, Arkansas, received $17.3 million in federal taxpayer funds through the Troubled Asset Relief Program in June 2009. To date, these funds are still outstanding.

The case was investigated by the Board-CFPB OIG, the Internal Revenue Service—Criminal Investigation Division, the FBI, the Special Inspector General for the Troubled Asset Relief Program, and the FDIC OIG. The case was prosecuted by U.S. Attorney’s Office for the Eastern District of Arkansas.

Former Bank Director Pleaded Guilty to Bank, Wire, and Securities Fraud

On June 5, 2014, a former Bank Director pleaded guilty to bank, securities, and wire fraud to resolve charges brought in the Southern District of Georgia and the Eastern District of New York relating to a multimillion-dollar fraud scheme that the individual executed to defraud dozens of investors and a federally insured bank. The former Bank Director faces up to 30 years in prison, millions of dollars in fines, and millions of dollars in restitution to the victims of his fraud.

According to court filings and evidence presented at the guilty plea hearing, in 2010 an investment group controlled by the former Bank Director invested approximately $10 million in the failing MB&T, an FDIC-insured financial institution in Ailey, Georgia. MB&T is a subsidiary of Montgomery County Bankshares, Inc., which is a bank holding company regulated by the Board. The former Bank Director then was made a director of MB&T and put in charge of investing the bank’s capital. The former Bank Director told MB&T officials that he would invest the bank’s capital in U.S. Treasury securities, but instead, over the next 18 months, he embezzled over $21 million in capital from MB&T. To cover up his fraud, the former Bank Director provided MB&T officials with false documentation that indicated the bank’s capital was safely held in an account at a financial services firm, when, in fact, most of the money was gone.

This case was the result of a joint investigation by the Board-CFPB OIG, the FDIC OIG, and the FBI. This case is being prosecuted by the U.S. Attorney’s Office for the Southern District of Georgia.

This prosecution was the result of efforts by the presidential Financial Fraud Enforcement Task Force, which comprises more than 20 federal agencies, 94 U.S. Attorney’s Offices, and state and local partners and is the broadest coalition of law enforcement, investigatory, and regulatory agencies ever assembled to combat fraud.

Seven Former Bank Officers Sentenced in Loan-Fraud Scheme That Preceded the Collapse of First National Bank of Savannah

On June 25, 2014, seven former officers of First National Bank of Savannah were sentenced. Earlier, each of the defendants had pleaded guilty to his role in a massive loan-fraud scheme against First National Bank of Savannah and other federally insured banks. First National Bank of Savannah is a subsidiary of First National Corporation, a bank holding company regulated by the Board. The seven convicted former officers of First National Bank of Savannah received the following sentences:

• The former President and Chief Executive Officer of First National Bank of Savannah was sentenced to serve 42 months in prison, to pay about $9,749,265 in restitution, and to serve 3 years of supervised release after his release from prison.
• The former Executive Vice President and Chief Financial Officer of First National Bank of Savannah was sentenced to serve 20 months in prison, to pay about $72,571 in restitution, to pay a fine of $100,000, and to serve 3 years of supervised release after his release from prison.
• The former City President and Senior Lending Officer of First National Bank of Savannah was sentenced to serve 38 months in prison, to pay about $158,518 in restitution, and to serve 3 years of supervised release after his release from prison.
• The former Vice President of Credit Administration of First National Bank of Savannah was sentenced to serve 2 years of probation and to pay $14,800 in restitution.
• A former Senior Vice President and Commercial Loan Officer of First National Bank of Savannah was sentenced to serve 22 months in prison, to pay about $157,544 in restitution, and to serve 3 years of supervised release after his release from prison.
• The former City President of the Tybee Island branch and a Commercial Loan Officer of First National Bank of Savannah was sentenced to serve 38 months in prison, to pay about $3,891,870 in restitution, and to serve 3 years of supervised release after his release from prison.
• The former City President of the Richmond Hill branch and a Commercial Loan Officer of First National Bank of Savannah was sentenced to serve 10 months in prison, to pay about $57,771 in restitution, and to serve 3 years of supervised release after his release from prison.

According to evidence presented during the guilty plea and sentencing hearings, the defendants schemed to hide from the bank, members of the bank’s board of directors, and federal bank regulators millions of dollars in nonperforming loans. To assist in their scheme, the defendants falsified and fabricated numerous bank documents and records. First National Bank of Savannah failed and was taken over by the FDIC on June 25, 2010. The FDIC estimates that First National Bank of Savannah’s failure will cost the DIF over $90 million.

This case was the result of a joint investigation conducted by the Board-CFPB OIG, the FDIC OIG, the Treasury OIG, and the U.S. Attorney’s Office. This case was prosecuted by the U.S. Attorney’s Office for the Southern District of Georgia.

Table 9: Summary Statistics on Investigations During the Reporting Period^a